This talk tries to give answers to two important questions in the current
context: to what extent is the euro an economic and political cost for France?
And is an exit or dismantling of the euro possible, or would it rather be a
catastrophe?

Let’s start with the first question. For France, the identifiable costs of
belonging to the euro area are essentially three: two of an economic
nature–price competitiveness and budgetary austerity–and then a 3rd of a more
political nature–which resembles a “monetary veto”.

The weight of the divergence between France and Germany

The first of these costs therefore goes through the famous
“price competitiveness” channel. Of course, on the Left, we do not like this word of
competitiveness, which refers to the rules of capital and its logic of
competition. But it is a fact that within a single market, the one that manages
to produce cheaper ends up eliminating its competitors.

Indeed, in the euro area, since the mid-1990s, German employers have been able
to achieve a strong compression of wages relatively to productivity gains–the Hartz
reforms of the Schröder years being the symbol of that development (but not its only cause).
Conversely, during the same period, French wages have evolved in a manner
consistent with productivity–which is certainly not sufficient to recover the
ground gained by capital during the 1980s, but which at least corresponds to a more
cooperative behavior in a monetary union.

This wage divergence has given German companies a considerable advantage,
which has allowed them to compete effectively with foreign firms. Germany has
produced a huge trade surplus, much to the detriment of its European
partners, France in particular.

It is important to understand that the euro plays a role there: without the
single currency, the Deutschemark would have appreciated, cancelling German
competitiveness gains, and restoring some balance.

It is also in the name of competitiveness that in France we have been imposed
the CICE and the “Pacte de Responsabilité” (reforms mainly consistintg in cuts
in social contributions for employers): lowering the social contributions is
supposed to restore the competitiveness of French companies vis-a-vis German
ones. We know that the CICE created virtually no job, because the VAT increase
and the expenditure cuts that finance it have had a recessive impact. But the
essential is not there for our leaders: in practice, the euro provides them
with a convenient pretext to break our social protection, that is to say to
lower the socialized wage.

There is, however, one element of truth in the arguments justifying the CICE:
the wage divergence between France and Germany has a very concrete impact in
terms of unemployment. It led, through the German trade surplus, to the
destruction of jobs in France.

Is it possible to quantify this impact? My colleagues Xavier Ragot and Mathilde
Le Moigne tried it [1]. They came to the conclusion that if German wages had
evolved like French wages, the unemployment rate in France would be 1.2 to 3.3
points below what it is today. And even if my colleagues do not present it this
way, this can be considered as a cost of the euro because, without the single
currency, the Franc / Deutschemark parity could have adjusted and neutralized
the divergence.

I do not forget that in this rebalancing scenario, many jobs would be destroyed
in Germany in the export sector. But a fiscal stimulus and a general increase
in wages would increase German domestic demand, creating new jobs, so that such a
scenario could be envisaged without increasing unemployment among our German
friends.

Austerity as the founding contract of the euro

The second cost of the euro for France is evidenced by the budgetary austerity that
was implemented in order to comply with the Stability and Growth Pact.

Concretely, the procedures for monitoring national budgets systematically lead
to further cuts in expenditure–especially public investment–when it is not a
matter of raising taxes on popular consumption. These rules are all the more
absurd in that in practice they lead to demand more austerity in a crisis
situation, whereas it would be necessary to do exactly the opposite to restart
activity.

Of course, it is theoretically possible to disobey these rules. But this
would already question euro area membership, because a currency is a
social contract. And as absurd as it may seem, the contract that founds the
euro is the Stability Pact. To break this contract is to challenge the euro in
its legal and political foundations.

Disobeying the austerity rules would also imply taking the risk of a public
debt crisis. Because the so-called “market discipline” would start to kick in
in this case: the interest rates on the debt would go up, possibly going as far
as rendering impossible the financing the State budget; this is what the
countries of southern Europe have experienced. And it would be unrealistic to
rely on the ECB’s purchases under its Quantitative Easing to prevent this
crisis: as the Greek example has shown, the ECB does not hesitate to use
monetary policy to discipline governments resisting the neoliberal agenda.

In the end, can we assess the cost of austerity imposed on France
because of its membership in the euro area? The exercise is tricky, but let’s try
it anyway. The European Commission calculates the “structural fiscal adjustment”,
which is the concept closest to a measure of austerity. For France, since 2010,
this adjustment corresponds to about 3 percentage points of GDP. Under
reasonable economic assumptions, this may explain about 1 to 1.5 percentage
points of the unemployment rate.

So, of course, the example of the United Kingdom shows us that being outside
the euro does not automatically protect against austerity policies.
Nevertheless, belonging to the euro area is a commitment, and in reality a
constraint, to follow austerity policies. And these have a high cost, in terms
of unemployment and poverty, but also in closed public services or unrealized
public investments.

A risk of monetary veto

It is therefore clear that the euro is fueling the economic and social crisis
in France. And even if it is not at the same scale as in the countries of the
South, the economic mechanisms are similar. But this is perhaps not the most
serious issue.

Because the euro is a real democratic problem. As Robert Boyer says, “money is the
basic institution of a market economy. […] [It] appears […] in the economic
order, as the equivalent of language” [2]. This means that money is not a mere
veil over exchange, an essentially neutral tool, as mainstream economists
say. On the contrary, it is a central institution of capitalism, and like any
other institution, it is the object of a power battle.

In this perspective, the problem of the euro is therefore not that it is a
supranational institution–for in theory one can build democratic supranational
institutions; the problem of the euro is that it is a currency
structurally out of reach of popular intervention. It is no coincidence that
the ECB is the only truly federal but unelected institution that jealously
defends its “independence” vis-à-vis elected governments and parliaments (but
certainly not vis-à-vis financial markets).

In fact, the ECB played a decisive role in the failure of the Syriza
experiment. In February 2015, it deliberately cut off one of the two liquidity
sources of Greek banks. Then it suggested that there was a beginning of bank
panic–and in the mouth of a central banker, such a statement is largely
self-fulfilling. Finally, it completely cut off liquidity just before the July
referendum, causing the banking system to be totally paralyzed. As Michel
Aglietta put it, “from the destruction of confidence in money are born the
crises that bring back the absolute need for liquidity, paralyzing activity”
[3]. The action of the ECB during the first six months of the Syriza
government could hardly be better described.

Could such a “monetary veto” be applied to France if it decided to turn its
back on austerity and neoliberal policies? This is hard to say. Presumably the
French ruling class allied with the European leaders would play a double game,
openly worrying about the risk that a left-wing government is putting on
France’s participation in the euro, while at the same time organizing behind
the scenes the monetary stranglehold. The financial and economic health of
France being better than that of Greece, the drying up of liquidity would
however be more difficult to organize. And contradictions could appear within
the ruling class, because the exit of France would destroy the euro, and this
would harm the interests of a fraction of these ruling classes. The outcome of
this confrontation depends on economic and political developments that cannot
be anticipated.

Nevertheless this shows that, for the French and European Left, it is
necessary to prepare what is now called “Plan B”.

In the short term of the confrontation with existing institutions, this means
taking measures of monetary self-defense: issuing a parallel currency,
requisitioning the Banque de France or even private banks, imposing capital
controls.

And for the longer term of the necessary return to monetary co-operation, we
must think of a new European monetary system with two pillars: a common
currency, and national currencies with fixed but adjustable parities according
to a rule (of which there are several variants).

I do not wish to discuss these aspects here, although it is necessary to
pursue the reflection process in order to refine the proposals and the
scenarios.

The issue of financial interpenetration

I would like to conclude by examining two arguments that are often used to show
that an exit or dismantling is impossible (even by those who recognize the
serious defects of the euro area).

The first argument concerns financial interpenetration. The latter would be so
advanced that the dismantling of the euro, or even the exit of a single
country, would have cataclysmic consequences on the financial balance sheets of
economic agents. In the case of France, the fear is that the burden of public
debt, currently in euros, would become much heavier after an exit from the euro
and a devaluation of the new Franc. The same fear is expressed for companies
that go into debt on international markets.

In a recent study with Cédric Durand [4], we show that these fears are largely
exaggerated, even if the problem has to be taken seriously. The exposure of the
different sectors is much less than is generally imagined. Thus, French public
debt is almost entirely issued under domestic law, which means that it can be
converted into Francs by simple legislative act without any legal breach in the
loan contract. In the private sector—both financial and productive—the exposure is
more important, but it must be put into perspective: these sectors are indebted,
but they also hold international financial assets which will revalorize and act
as a cushion of security. Additional measures of economic policy, in
particular with regard to access to cash and essential imports, will make it
possible to absorb the shock.

The end of the euro can promote cooperation

There is another argument put forward, in particular by our friend Michel
Husson, which deserves attention: according to him, reforming the euro by
establishing a transfer union from northern to southern countries is
economically equivalent to dismantling the euro and rebalancing exchange rates.
He summarized it in the following way: “The debate does not oppose a transfer
union to the end of the euro, but two possible forms of transfers.” [5] He
thus concludes that putting in place a new co-operative monetary arrangement is
as demanding, if not more so, in terms of cooperative goodwill than simply
reforming the existing euro. For him, the project to exit the euro is a mirage
that diverts attention from the conflict between capital and labor.

This argument is seductive at first but it is, in my view, erroneous. It is
based on an overly static view of historical processes: incentives for
cooperation are not at all the same within and outside the euro.

In the present context, where wage regimes and the dynamics of class struggle
are essentially national, employers benefit from non-cooperation between
countries: for German capitalists, the current configuration allows them to
maintain their competitive advantage, since exchange rates are locked; and the
capitalists of the southern countries also draw some benefits, since they
can explain to their employees that austerity is necessary to be competitive,
given the overvaluation of the euro for these economies (this is the CICE effect
of which I have already spoken).

But in a system of national currencies, non-cooperation has far fewer
advantages. In flexible exchange rates, market forces tend to rebalance
competitive differentials, so that any benefit from the general decline in
wages is ephemeral. Even in fixed exchange rates, it is not possible to durably
overvalue its currency (because foreign exchange reserves end up being
exhausted), nor to underestimate it (this creates an inflationary risk,
sterilization having its limits). Conversely, in such a configuration, there
are international gains to cooperation: a certain stability of exchange rates
is necessary in order to avoid disrupting trade in goods and services between
European countries.

To conclude, it is clear that the euro is a factor of economic, social and
democratic crisis. It is a straitjacket that fuels mass unemployment in France
and aims to prevent any alternative from emerging. So of course, the end of the
euro can not constitute as such a political project, nor even a campaigning
axis. Nevertheless the Left must seriously prepare itself for it: this is the
indispensable condition to make its program of rupture credible.